Sunday, August 30, 2015

Zombie Factories Stalk the Sputtering Chinese Economy

Slide Show | ‘Zombie’ Factories in China, Running on Fumes
In the industrial city of Changzhi, some factories are sputtering on
and others have gone quiet, but with a slowing economy, none have much
reason to expect a return to boom times.

By MICHAEL SCHUMAN

August 28, 2015

Miao Leijie loses money on each ton of cement his company produces. But stopping production is not an option.

When
the plant opened in 2011 to supply the real estate and infrastructure
industries in the northern Chinese city of Changzhi, the company raised
most of the initial money from banks. Now, Mr. Miao, the factory’s
general director, needs to keep churning out cement simply so the
company can pay the interest on its loans.

It
will be tough for the business, Lucheng Zhuoyue Cement Plant, to get
out of the hole. Customers and investments are drying up, and the
company is borrowing even more money to stay afloat.

“If
we ceased production, the losses would be crushing,” Mr. Miao said, as
he chain-smoked in the company’s quiet, spartan office. “We are working
for the bank.”

Changzhi
and its environs are littered with half-dead cement factories and
silent, mothballed plants, an eerie backdrop to the struggling Chinese
economy.

Like many industrial cities across China,
Changzhi, which expanded aggressively during the country’s long
investment boom, has too many factories and too little demand. That
excess capacity, many economists indicate, will have to be eliminated
for the Chinese economy to return to healthy growth.

But rather than shut down, Lucheng Zhuoyue and other Changzhi companies are limping along in a kind of march of the undead.

To
protect jobs and plants, the government and its state-owned banks
sometimes keep money-losing businesses on life support by rolling over
or restructuring loans, providing fresh credit or offering other aid.
While this may seem like an odd business tactic, it is part of a broader
strategy to help maintain social stability, a major goal of China’s
leadership. Authorities in China’s provinces and cities also back
struggling factories just because they are deemed important to the local
economy.

Similar
strategies have been tried before, with little success. In Japan, such
businesses, known as “zombie companies,” are blamed for contributing to
that country’s two decades of economic stagnation.

As
China allows its own “zombies” to stalk the economy, the situation is
clouding the country’s outlook, making it difficult to predict where
growth is headed. If the leadership doesn’t address the underlying
problem, the economic weakness could be prolonged.

Concerns
have already been rising that China’s slowdown is worsening and its
problems are becoming harder to overcome. Such fears helped ignite a dramatic sell-off on stock markets around the world. Shares on the Shanghai stock exchange have tumbled by more than third since the June high.

“Global
investors have now come to realize that China’s travails are beginning
to affect everyone,” said Frederic Neumann, co-head of Asian economic
research at HSBC in Hong Kong.

A
former worker of the Changzhi Cement Group factory exiting his
apartment building on Monday. He complained that he had paid for his
flat but had not received the homeownership documents from the
state-owned factory.

Adam Dean for The New York Times

A Threat to Prosperity

Far
from the sparkle of Shanghai or the export zones of Shenzhen, Changzhi
is a modest city of three million people who live in low-rise apartment
complexes and work in boxy factory compounds. The local economy depends
on steel manufacturing and other heavy industries that girded the
country’s decades-long era of high growth. As the property market grew
and the government plowed money into roads and other infrastructure,
cement factories sprouted on the city’s outskirts to capitalize on the
bonanza, creating hundreds of well-paying jobs. In recent years, the
busy local shops and crammed fast-food restaurants along Changzhi’s
narrow downtown streets bustled with new prosperity.

But
the country’s economy is slowing down, threatening that wealth. Gross
domestic product expanded 7 percent in the second quarter of 2015. While
that would be a stellar performance by the standards of most countries,
it is the slowest pace for China in a quarter-century.

Some
industries are plummeting, wreaking havoc in less economically diverse
cities and towns. Empty apartments built during the boom are now
weighing down the property sector. Businessmen in Changzhi complain that
construction projects supported by the local government have also been
scaled back.

As a result, Changzhi’s cement
plants are saddled by excess capacity. Companies in the province can
produce three times as much cement as what was actually needed in 2014,
according to the Shanxi Provincial Association of Building Material
Industries. Two-thirds of them lost money in that year.

Such
conditions have turned once promising companies into zombies. While
trucks are still parked outside the sprawling industrial compound of
Changzhi’s Huatai Cement Clinker Company, there are far fewer than just a
couple of years ago, and they have less to haul. The money-losing
company has produced a mere 200,000 metric tons of cement this year,
even though it is able to make one million.

As
a state-owned enterprise, Huatai has been kept running with the help of
special assistance. Huatai gets coal on credit and access to cheap
loans from its parent company, which is owned by the provincial
government. That has allowed management to keep all its 300 workers on
the payroll — the company’s top priority. “Our employees need to eat,
they need to live,” said one manager, who declined to give his name.

Such
measures may help sustain employment, but they also delay the much
needed overhaul of Chinese industry. A study of China’s labor market by
the International Monetary Fund released in July noted that state-owned
enterprises tended to keep workers that they did not need. From an
economic perspective, it would be better for such businesses to downsize
or even close, releasing their trained staff to work at companies or in
sectors with stronger prospects. That would shift resources away from
less productive parts of the economy, helping get growth back on track.

Without
such a shift, the economy could suffer in the future. Raphael Lam,
deputy resident representative at the I.M.F. in Beijing, says Chinese
policy makers should move more forcefully to enact pro-market reforms
and allow state-owned enterprises to restructure. If not, he says, “Over
the long term, there would be an increasing likelihood of a sharper
slowdown.”

‘Eternal, Unpaid Vacation’

The
situation is also complicating matters for workers not lucky enough to
keep their jobs. Though unemployment has remained low nationally,
workers in troubled Changzhi complain that good jobs are hard to find.

At
the Changzhi Cement Group, where the only sound is a barking dog, a
former company electrician, Zhao Liwei, 43, watches TV inside a decrepit
room for janitors at the compound’s entrance. Two years ago, as
production at the state-owned plant ground to a halt, her paychecks
stopped coming. Most employees were left to fend for themselves.

Since
the factory was never formally shuttered, they have not received
severance payments or other compensation, Ms. Zhao said. Though a
private company took on a handful of employees to produce cement in a
portion of the plant’s facilities in August, the work is only temporary.

Ms.
Zhao has not worked at all. The only jobs in the area, she says, are
sweeping floors and waiting tables, for as little as 500 renminbi, or
$78, a month. She earned twice that working at the factory. “We were
promised an iron rice bowl” — the Chinese term for lifetime employment —
she said. But now “it is like we’ve been left on an eternal, unpaid
vacation.”

Some of these idled workers have
faced biting hardship. Sitting outside a nearby deteriorating
residential complex, Du Jianping, 45, says that she has to rely on
handouts from her parents to put food on the table for her 12-year-old
daughter. She and her husband lost their jobs at the Changzhi Cement
Group, and ever since, Ms. Du has been earning a pittance selling
women’s clothes and children’s toys at a stall outside a train station.

She
feels trapped, fearing she would be unable to get better work
elsewhere. “We are too old to find jobs in the cities,” she said. “I
hope the government could help lift up the cement industry so that it
can recover.”

Beijing is sensitive to such
pleas. Fearing that joblessness could lead to social instability, the
government has made maintaining employment a primary goal of its
economic policy. Premier Li Keqiang said during a news conference last
year that the lowest growth rate acceptable to the regime “needs to
ensure fairly full employment and realize reasonable increase of
people’s income.”

That helps explain why Beijing is taking stronger action to prop up the economy. On Aug. 25, the central bank cut its benchmark interest rate for the fifth time since November. Almost two weeks earlier, it suddenly devalued the renminbi, which some analysts see as an attempt to lift China’s sagging exports by making them cheaper in international markets.

The
government is also planning to use state banks to finance another round
of infrastructure spending aimed at aiding beleaguered industries like
cement. Managers in Changzhi argue that the authorities should be doing
even more to help, by setting a minimum price for cement or supporting
local construction projects.

Still, such
steps may do little more than keep zombie companies alive — to the
detriment of the overall economy. By pumping up growth with fresh credit
and stimulus, the government might temporarily revive some factories,
but also exacerbate the economy’s problems of excess capacity and high
debt.

The consulting firm IHS Global Insight
estimates that debt relative to China’s output will reach 254 percent in
2015, nearly double the level of 2008. Such debt levels can pose
substantial risks to an economy if borrowers are unable to repay them
and a wave of defaults follows. “The size of debt only accumulates,”
said Grace Wu, a senior director at the rating agency Fitch in Hong
Kong. “That doesn’t help with the underlying economy. It doesn’t help
create jobs.”

Over the long term, Chinese
policy makers are trying to decrease the economy’s dependence on
excessive investment for growth and allow household consumption to play a
bigger role. That means the factories in many heavy industries, like
cement, may never run again at full tilt.

Wang
Xiaohu has not completely given up hope. Over the years, Mr. Wang, a
40-year-old businessman, put 20 million renminbi, or $3.1 million, into
Changzhi Ruili Building Materials Ltd., which can produce 300,000 metric
tons of cement annually. But now the factory site is watched over by a
lone, elderly security guard in an ill-fitting uniform. Mr. Wang was
forced to idle the plant about 18 months ago, laying off nearly all of
his 100 employees.

Mr. Wang, though, has refused
to liquidate the factory. Instead, he maintains the machinery, waiting
for the day when the economy revives and he can produce cement once
again — a day that even he acknowledges may never come. “Many of the
small and medium cement plants here are like this,” Mr. Wang says. “The
chances are slim that they will ever reopen.”

Saturday, August 29, 2015

RSIS
Commentary is a platform to provide timely and, where appropriate,
policy-relevant commentary and analysis of topical issues and
contemporary developments. The views of the authors are their own and do
not represent the official position of the S. Rajaratnam School of
International Studies, NTU. These commentaries may be reproduced
electronically or in print with prior permission from RSIS and due
recognition to the author(s) and RSIS. Please email: RSISPublications@ntu.edu.sgfor feedback to the Editor RSIS Commentary, Yang Razali Kassim.

No. 184/2015 dated 27 August 2015

US-led vs China-led Institutions:Need for New Bretton Woods

By Pradumna B Rana

Synopsis

Complementarity
between US-led and China-led institutions requires the ratification of
the 2010 IMF governance reforms by the US Congress. As this is unlikely
to happen any time soon, we need to start thinking of a New Bretton
Woods.Commentary

IN
THE three-round match between the United States and China over
influence in the Asian regional architecture, Round 2, which was played
several months back, went in China’s favour. Countries like Britain,
Korea, and Australia broke ranks with the US and 57 countries from
around the world including Germany, France, Iran, the United Arab
Emirates, and Nepal applied to be the founding members of the Asian
Infrastructure Investment Bank (AIIB).

Japan has so far stuck to
the US but it has indicated that it remains interested in joining the
AIIB which is the financing arm of China’s new “One Belt, One Road”
policy. Initially the US had attempted to dissuade potential applicants
by citing poor governance and due diligence capacity at the proposed
institutions. But it made a dramatic turnaround in mid-April when US
Secretary, Jack Lew visited Beijing.Humiliation of US

Lew
mentioned that while Washington remained concerned about AIIB’s
governance, there was “enough infrastructure need for the new and
existing institutions”. He went on to add that the US would be willing
to work with the AIIB through existing financial institutions such as
the ADB and World Bank. A few days later the World Bank’s US-appointed
president vowed to find “innovative” ways to work with the AIIB and
welcomed it as a “major new player” in the world of development finance.
This is Round 2 of the humiliation of the US by China.

Less
well-known is Round 1 of China’s (and Japan’s) humiliation of the US
which occurred in the aftermath of the Asian financial crisis of
1997-1998 when the US and US-led IMF had shot down proposals to
establish the Asian Monetary Fund (AMF). At that time, IMF surveillance
had failed to adequately identify the risks posed by the uneven pace of
capital account liberalisation in the region and the extent of banking
sector weaknesses.

The IMF had, therefore, initially
misdiagnosed the Asian financial crisis and prescribed inappropriate
policies which exacerbated the impacts of the crisis and led to a
free-fall of currencies, fanned the contagion, and plunged the region
into a sharp recession. This had led countries in the region to initiate
regional “self help” measures to take things under their control.

Although
the AMF was stillborn, the region has established a US$240 billion
crisis management fund called the Chiang Mai Initiative Multilateralism
(CMIM) and the ASEAN+3 Macroeconomic Research Office which is the
“independent surveillance unit” for the CMIM. The idea of the AMF has
not been forgotten and keeps coming up every now and then.

Round 3
of the China-US game is presently being played out in the area of
international trade. We have the US-led Trans-Pacific Partnership (TPP)
which locks out China and the ASEAN-led (and China-led) Regional
Comprehensive Economic Partnership (RCEP) which locks out the US.Progress in TPP Negotiations

Hopes
were high of a breakthrough in the TPP when the negotiators met in
Hawaii end-July, because the US President had been given the fast-track
authority to smoothen the way through the legislature for the TPP. Yet
after much fanfare and encouraging initial reports the ministers ended
their negotiations by releasing a joint statement that merely committed
to further talks. The talks reportedly stalled over a range of issues,
including auto, dairy and sugar exports, and protection of
next-generation drugs.

Round 3, therefore, hangs in the balance.
This is because unless the negotiators can conclude a deal soon, it
will be impossible to get it ratified by the US Congress this year. By
that stage the US presidential election is likely to overshadow trade
talks and TPP approval may have to wait until the next presidential
term. If TPP disappoints or worse still it is not concluded at all, it
will be another major setback for the US in Asia as it is the economic
arm of President Obama’s “pivot” to Asia.

Although in a game of
baseball, three strikes means “out”, this is not the case in global and
regional diplomacy. It only means that the US’ clout in the region will
be reduced and the sparring between China and US will continue in the
future. China-led institutions in Asia will also not pose a threat to
the well-established IMF or the World Bank. They will, however,
complicate global economic governance and make it more complex.

Complementarity or a New Bretton Woods?

What
should be done? The issue could be resolved if the IMF and the World
Bank could work together with China-led institutions in a complementary
and seamless manner. A case in point is the troika approach in the
eurozone where bailout packages are designed, financed and monitored
jointly by the EC, European Commission, and the IMF. But such an
approach might not be possible in Asia. This is because while Europe is
special to the IMF and World Bank, Asia is not. Europe, occupies 10 out
24 chairs in the IMF and World Bank Board, while Asia is
under-represented. The Managing Director of the IMF has always been a
European.

It appears that the necessary approval of the US
Congress of an agreement to reform the governance of the IMF reached at
the G20 Summit in Korea (to give greater voice to China and other
emerging markets and make the selection of its head merit-based) may be
indefinitely delayed. Last December, Christine Lagarde, the Managing
Director of the IMF, announced “As requested by our membership, we will
now proceed to discuss alternative options for advancing quota and
governance reforms...”

If US-led and China-led institutions
cannot take joint decisions and work with each other in a complementary
manner, 70 years after the original Bretton Woods agreement, we need a
New Bretton Woods led by a select group from the truly “systemically
important countries” of the world.

Pradumna
B. Rana is Associate Professor and Coordinator of the International
Political Economy Programme in the Centre for Multilateralism Studies at
the S. Rajaratnam School of International Studies (RSIS), Nanyang
Technological University, Singapore.

Top Scientist Who Exposed GMO Now Silenced by Biotech

Along with many other censored researchers

“If I had the choice, I certainly wouldn’t eat it,” said
scientist Arpad Pustazai in an interview conducted after his study of
GMOs.

Have you heard his name before? Likely not, since biotech made an
example of him in 1998, launching an attack against any scientist that
exposed just how toxic GM crops truly are. What did Pustazai find when
he conducted trials on animals given genetically modified food? Read on
to find out what Monsanto has suppressed for decades.
Dr. Pustazai’s comments about GMOs were aired on British television
in the summer of 1998, and they were a viral flame that biotech decided
to hose down as fast as they could. Dr. Pustazai has credentials as a
world-renowned expert on food safety. He worked at one of the UK’s
leading food safety research labs, the Rowett institute. The scientist
has more than 300 articles to his credit,
as well as three books. Nonetheless, just a few days after his public
statement, he was suspended and gagged by the research institute where
he worked.
Dr. Pustazai’s curriculum vitae is what afforded him a $3 million
grant by the UK government to study GMOs. Dr. Pustazai was possibly the
first, if not a primary scientist to point out that GM food was not at all substantially equivalent to non-GM foods.

He also pointed out that the testing procedures
employed by the UK, and incidentally, this is true for the US as well,
were inadequate to determine toxicity due to the short durations used.
He said that this only ‘superficially’’ tested foods, and only
longer-term studies would reveal their true detriment to human and
animal health.
The biotech industry set out to make Dr. Pustazai look like a senile
idiot, but what he found in his own longer-term studies was extremely
telling. Later, 24 additional scientists in countries around the world
confirmed Pustazai’s findings to be true.Read: Former Pro-GMO Scientists Admits GMOs are Dangerous
When the doctor fed rats GM potatoes, within just 10 days, the
animals developed potentially pre-cancerous cell growth, smaller
brains, livers, and testicles, partially atrophied livers, and damaged
immune systems. What’s more, the cause was most certainly side
effects from the process of genetic engineering itself. In other words,
the GM foods sold in grocery stores, which are created from the very
same process, likely have similar effects on humans, according to
Pustazai’s research.
How many more Dr. Pustazai’s are out there,
do you think? Scientists that have been shamed, fired, discredited, or
possibly worse, so that the biotech industry can continue selling the
world poison? One example that comes straight to mind is Tyrone Hayes, a
scientist who was discredited, gagged, and more by biotech giant Syngenta – all
because this biologist from UC Berkeley told the truth about the
company’s herbicide Atrazine and its cancer-causing nature.
You can’t keep the truth a secret forever, though – even if you are a
multi-billion dollar industry which uses illegal and immoral tactics.
You can read Pustazai’s study in full, here.Be sure to pass it along.This article first appeared at Natural Society.com.

Bryce Williams is a Product of the Contrived Race War

The awful truth about today's shooting

The awful truth about the tragic shooting today of
reporter Alison Parker and cameraman Adam Ward is that they are both
victims of the contrived race war that has gripped America.
In a fax sent to ABC News, the gunman states that the shooting was a revenge attack for the Charleston massacre, his contribution to the “race war”.
On his own Twitter account he also said he targeted Parker because of her “racist comments” towards him.
And yet what did Deray McKeeson, the de facto leader of ‘Black Lives Matter’ tweet before the identify of the shooter was even known? Before the bodies were even cold?
He blamed the shooting on white people. In the very minutes after
news of this horrific incident broke, the figurehead of Black Lives
Matter was exploiting the tragedy for political points scoring.
Then he had the nerve to retweet other people who decried those using it for political points scoring.
Same with Hillary Clinton and an army of other leftists. Before the gunman had even been caught, Clinton was using the tragedy to go after the Second Amendment.
This contrived race war – which has been legitimized by the Obama
administration – is emboldening extremists on both sides of the
equation.
The leftist media blamed all white people in the aftermath of Charleston.
So am I going to blame all African-Americans for what Bryce Williams did? No.
But when you create an environment, as the leftist media has done, when violence targeting innocent people is a justified response to claims of institutionalized racism – this is what happens.
We saw it with Ismaaiyl Brinsley – the guy who shot two NYPD cops in the head as part of a Black Lives Matter revenge attack.
And now the next Dylann Roof will see Bryce Williams’ violent rampage
as a legitimate excuse for his form of revenge. The cycle never ends.
When are we going to stop allowing this race war narrative to divide us and tear at the fabric of our society?
When is the Black Lives Matter movement going to acknowledge black on
black violence as part of the problem, just as several African-American
voices have done in recent days?
When are we going to focus on how we can fix police brutality by
having a rational national conversation about it that isn’t poisoned by
race baiting.
Until that day comes, we’re going to see many more Dylann Roofs and
Bryce Williams’ – and the victims won’t be black supremacists or white
supremacists.
The victims will be innocent people. The victims will be churchgoers
in Charleston. The victims will be and Adam Ward and Alison Parker.

The Truth About ‘Black Lives Matter’

Radical origins of controversial movement revealed

Paul Joseph Watson appears on ‘Louder With Crowder’ to
break down the origins of the ‘Black Lives Matter’ movement, how its
inspiration is a convicted cop killer who is on the FBI’s Most Wanted
Terrorist list, and what its true agenda really is.
A new poll also suggests that the majority of African-Americans don’t identify with the Black Lives Matter movement.
So who is really pushing it and for what purpose?SUBSCRIBE on YouTube:

Obama and Democrats Ignored American People Last Year When They Said Worry #1 was the Economy

Obama said race and climate were the real issues

A Gallup poll conducted in March of 2014 showed Americans were not worried about issues presented by Obama and the Democrats.

Climate change came in second to last as a national problem,
according to the survey. Race relations landed at the dead bottom of the
list. Immigration was near the bottom as well, followed by
environmental concerns.
Not surprisingly, most Americans said they were primarily worried
about a dismal economy which, according to the establishment media, was
on the rebound.
Nearly 60 percent of Americans rated the economy as the problem they are most concerned about.
58% said they worried a “great deal” about out of control federal
spending and the budget deficit which, according to Obama and the
Democrats in 2013, was a phantom issue cooked up by a crazed tea party
faction in Congress to derail government healthcare.
Nearly as many people said they were worried about the state of healthcare, according to the poll.
If Obamacare was the cure for the nation’s broken healthcare system,
as Obama and the Democrats insist, this would not rate as a serious
problem.
Obviously, millions of Americans understand Obamacare is not a solution but in fact exacerbates the problem.
Americans also indicated they were concerned about a gargantuan government and the authoritarian power it increasingly wields.
Social Security, hunger, homelessness, crime and violence
overshadowed immigration, the drug war, climate change and race
relations in the poll.
Despite the poll results, the corporate media, led by MSNBC or CNN, continued to blather on about race and climate change.
This was done not because these government propaganda organs are
clueless, but rather as a diversionary tactic to steer Americans away
from the real problems they face.
Now faced with the reality despite trillions spent in a doomed effort
to stimulate the economy with an influx of trillions in inflated funny
money, the government may cook up a new distraction, for instance a war
against Russia or China.

Thursday, August 27, 2015

Gullible Americans Forever — Paul Craig Roberts

Gullible Americans Forever
Paul Craig Roberts
“Next the statesmen will invent cheap lies, putting the blame upon
the nation that is attacked, and every man will be glad of those
conscience-soothing falsities, and will diligently study them, and
refuse to examine any refutations of them; and thus he will by and by
convince himself that the war is just, and will thank God for the better
sleep he enjoys after this process of grotesque self-deception.” —
Mark Twain
Listening to NPR news today I was reminded how throughly this once independent voice has sold out.
I was also reminded of the Mark Twain quote above. NPR reported that
Syrians were lined up in Turkey waiting on passage on inflatable rafts
to Greece. According to the NPR report, there are 2 million Syrian
refugees in Turkey and 250,000 Syrians have been killed. NPR said
nothing about the cause of this murder and displacement of vast numbers
of people. It was if the plight of these people materialized out of
thin air. The fact that Washington sicced ISIS, al Qaeda, Turkey, the US
and NATO Air Forces, and Washington’s Middle Eastern vassals on Syria
was not mentioned. The view on NPR is the same as Washington’s — that
if only Assad would resign and hand Syria over to Washington, everything
would be fine.
Americans don’t go to bed every night unable to sleep from shame from
the atrocities that the US government has inflicted on Syria. And on
Iraq. And Libya. And Afghanistan. And Pakistan. And Yemen. And Somalia.
And Ukraine. And Serbia. According to the prostitute media, all of these
human catastrophes are the work of dark forces that America must
combat. It is all a clever orchestration of public emotion in favor of
the military/security complex’s bank balance.
The corruption of public discourse in America, indeed throughout the
West, is total. There are no reliable reports, not from public or
private institutions. The economic reports are propaganda to keep alive
the image of a successful America. The reports about Russia, Ukraine,
and Muslims are propaganda designed to inculcate fear in the gullible,
fear that ensures more power and profit for Washington and the
military/security complex.
Americans have proven themselves to be the easiest sheep ever to be shorn.
The gullibility of Americans threatens the world with armageddon.

Do You Think They Really Understand the Mess We Are In?

Matt Towery

8/27/2015 12:01:00 AM - Matt Towery

It's not just the stock market that is having trouble
these days. In reality, everywhere you look there are just plain wacky
things going on that somehow much of the media and political
"intelligentsia" have failed to report or acknowledge.
Back
in April, this column, based on analysis of several readily available
financial surveys, suggested that a major correction in our markets was
likely, not in a matter of years, but in just months. Bam. It happened.
The
most troubling aspects are not the issues or problems that require a
crystal ball and a lot of luck. More concerning is a collection of
obvious events and patterns that seem to suggest that our nation is
running right off the road and into a ditch.
Internationally, we
have an absurd potential agreement with Iran. It has come to light that
the Iranians will, at critical junctures in enforcing the deal, have the
right to comply by virtue of their own self-inspection. No wonder
Israel, the Saudis and everyone else in that region of the world are
busy arming themselves to the teeth. This is "must-have diplomacy" at
any cost, and it makes the late British Prime Minister Neville
Chamberlain, he of appeasement fame, look like General George Patton
when compared to Secretary of State John Kerry.
We have ISIS in
control of half of Iraq, yet neither President Obama nor his
administration seem concerned. Now throw continuing antics from North
Korea into the mix.
The economies of most of Europe and much of
Asia are in some phase of meltdown and have been for some time. Economic
growth has slowed around the world and has turned out to be a pittance
here at home.
Meanwhile, racial tensions are the worst since the
1960s, and the broad response has been to overcorrect whatever's wrong.
You might have noticed that many of your local news stations often won't
provide full descriptions of wanted criminals, even if they are still
on the loose. Is it any wonder that so many people are gravitating to
Donald Trump's refusal to play the PC game? Whether black or white, we
need to know what a suspect looks like in order to find him or her.
And
it goes on and on. Unemployment is arguably down, but no one seems to
be making any more money than they did before the Great Recession began.
Everyone I know has a higher health-care premium and a much bigger
deductible than previously. And I don't care what anyone says about
inflation; just note how much it takes to fill up that grocery cart
compared to a few years ago.
A controversy over the old
Confederate battle flag has somehow morphed into people feeling that
it's just fine to step on, burn or ban our own U.S. flag. Some colleges
and other schools have even banned our national flag from their
campuses.
And then there is the contest for the presidency. On the
Republican side we have a bunch of idiots at various state GOP parties
vowing to keep Donald Trump off the ballot if he doesn't take some
loyalty oath to the eventual ticket. This is supposed to be the
Republican Party, not the Nazi Party. Such silly efforts only make Trump
look stronger, and these leaders look like childish insiders. Trust me,
this is going to backfire in a big way.
And then there are the
Democrats. Now we see how the Obama loyalists plan to stop Hillary
Clinton, just as they did in 2008. Is anyone dumb enough to think that
the GOP has provided all the leaks and information related to her
"classified emails" on that private server? Boy, the wheels of justice
moved swiftly to seize on that one!
I've got news for Clinton: a
lot of her current problems might be from partisan politics, but they
are coming from her own Democratic Party.
With Clinton tainted
Conservatives will be thrilled; that is, until the far more liberal Joe
Biden or avowed socialist Bernie Sanders knock her off and the GOP has
another potential November meltdown -- leaving us with Obama II.
And we thought just stock market was in trouble!

That
was some rally yesterday today, huh? And if you listen to the average
pundit on CNBC, you’d think it stemmed from a bunch of prescient, wise,
old fund managers putting all their spare cash to work.
You know: The cash they claim they raised months ago, just so they
could put it to work if we got a significant “correction.”

There’s just one problem: The data suggests these guys don’t have any cash! They basically spent it all … and then some.

First,the amount of spare cash on the books at U.S.
mutual funds just sank to 3.2% in early August.
That’s the lowest in history.

As a percentage of stock market capitalization, fund cash levels are also hovering right around the record low set in 2000.
You probably don’t need me to remind you that’s when the Nasdaq topped out and subsequently crashed by around 80%.Second,big money investors haven’t just been burning through all their spare cash to buy stocks.
They’ve been borrowing gobs of money to buy even more.

As of April – roughly where the broad markets peaked – investors had racked up a whopping $507.2 billion in margin debt on the New York Stock Exchange alone.
That was the highest in U.S.
history, and more than two-and-a-half-times the $182 billion outstanding when the current bull market began in March 2009.

Take a look for yourself.
We’re practically off the charts compared with the previous peaks from the dot-com and credit market bubbles:

On the margins …

Not familiar with margin borrowing? Then
here’s a quick primer: It’s when you borrow against your stock and bond
portfolio to buy even more stocks, bonds, or other assets.
The amount you’re allowed to borrow depends on what kind of assets you
own, and which broker you use.The net effect is to boost your leverage.
The more the market goes up, the more money you make – much more than if you just bought with spare cash.

But when markets tank, so does the value of the collateral backing your margin loans.
Brokers have built-in risk thresholds that require them to issue margin calls if the value of your collateral goes down.
When you get one, you either have to put up more cash, or your broker will start selling your assets.

See the problem here? Falling markets force margin calls, which result in brokers selling customer assets.
That puts more selling pressure on the markets, triggering even more margin calls … and even more selling.
It’s a self-fulfilling process that helps exacerbate ugly days in the market like we’ve just had.

How big of a problem is this? Well, as I just highlighted, margin loans overall hit a record high this spring.
And the Wall Street Journaljust reported today that big-name banks and brokers have made tens
of billions of dollars more in margin loans over the last couple of
years.

Per the Journal, Morgan Stanley (MS) alone had more than $25 billion in securities loans outstanding as of June 30.
That was a whopping 37% rise in the past year.
Bank of America (BAC) extended almost $39 billion of such loans (it owns Merrill Lynch), up 14%.

Bottom line: These indicators aren’t great timing tools.
They won’t tell you what’s going to happen in the next hour or day or even week.
But they do confirm that …

B) There isn’t a lot of cash out there, cash that could give us a cushion during severe downturns.

So I
ask you, do you want to trust that fund manager who just went on TV
saying what great buying opportunities these declines are? Or do you
think maybe, just maybe, he’s secretly panicking because he has no cash
left in his fund? Or maybe he needs stocks to bounce to avoid getting
more margin calls in his own personal portfolio?

Am I
being too much of a skeptic here? Too much of a worrywart? Or does the
surge in margin borrowing and decline in cash levels concern you too?
What do you think will happen here in the markets next? A rip-roaring
rally back to new highs? A failed test of the recent lows? Something
else? Hop on over to the Money and Marketswebsite and weigh in when you can.

Our Readers Speak

Chaos and turmoil are the name of the
game in today’s markets, with swings of hundreds of Dow points up and
down becoming the norm.
I’m doing my best to help you sort through what it all means, and
what’s coming next.
And many of you also shared your opinions over at the website
overnight.

Reader Carla said: “Like I said a few days ago … a
tsunami.
It comes in waves, and it ain’t done yet.
I’m still in agreement with you and selling on the upswings, cautiously
making very small position accumulations on the downswings in good
companies I want to know for a long time — in good times or bad.”

Reader Charles said: “Central bank money pumping does not put money in anyone’s pocket, except the bankers, unless you have willing borrowers.
With the standard of living falling and the levels of debt in the economy, the Fed is now pushing on a string.

“I see a debt collapse coming – a very nasty one.
Pay off your debts and keep cash on hand.
A lot of folks are already doing just that because the velocity of money is slowing.”

Reader Jim added: “Can you imagine where our economy
would be now if the several trillion dollars of stimulus had been given
to ‘We the People’ instead of the financial institutions and Obama’s
crony capitalist pals?

“I’m amazed that China can watch what happened to us the last six years and still want to emulate us.
Keynes has failed everywhere he has been tried, but they still don’t get it.”

Reader Daniel jumped in with these comments: “So, the
Fed has irretrievably degraded our future, and our free market system,
and proven it is feckless as it regards the economy.
They shot all their arrows and missed, and now we have to pay for their
retreat to Jackson Hole?

“If we were able to retrieve all the
phony money they have created, we could send every man, woman, and child
in the USA to a retreat in Jackson Hole.
My message to the Fed: ‘You’re fired!'”

Lastly, Reader Billy
said: “It’s becoming clearer by the day that the next bear market has
begun and actually most likely began months ago.
The brush fire started in the commodities complex, and now thanks to
many, many other problems, is spreading to become a full blown fire very
soon.
ALL the signs are staring us in the face, if we have the wisdom and
intelligence to identify and recognize them.”

Thank
you for all the cogent comments.
It’s hard to look at market dislocations like we had in the past week
and conclude it’s just “business as usual.” The signs coming from
commodities, credit markets, and currencies have been problematic for a
while now, and stocks are finally sitting up and paying attention.

I got more cautious than I’ve been in several years — vocally — before
the collapse.
And these wild swings don’t make me feel any better about where markets
are headed in the months ahead.
So you can bet I’ll have updated investment strategies and
recommendations designed to help you protect yourself and profit from
this new market regime.

Anything else you want to add? Don’t keep it bottled up.
Share your thoughts over at the website.

Other Developments of the Day

After plunging virtually nonstop for weeks, China’s Shanghai Composite Index jumped more than 5% in the overnight session.

But
it’s pretty clear the rally was “bought and paid for” in Beijing, given
that stocks were down slightly on the day until a miraculous,
mysterious rally in the last 45 minutes of trading.
Bloomberg reported that China wanted stocks to look better because China is conducting a military parade on September 3.
No, I’m not joking.

The
1% has enjoyed most of the fruits of the current economic expansion,
even as the 99% has continued to suffer from lackluster wage and
economic growth.
But maybe that’s starting to change, judging from the latest earnings
report out of Tiffany & Co.
(TIF).

The upscale jeweler reported 86 cents per share in adjusted earnings, missing analyst forecasts by five cents.
Its shares fell to a two-year low after the news.

How much money did investors lose from the market decline earlier this week? The industry may not even know, according to the Financial Times.

Many mutual funds and ETFs use a computer system from Bank of New York Mellon (BK)
to provide accurate pricing data.
But software glitches are resulting in inaccurate Net Asset Value
calculations and other problems.
Regulators and industry representatives are desperately trying to sort
the glitches out amid some of the worst volatility we’ve seen in years.

All
eyes (at least here) are on Tropical Storm Erika as she continues to
churn through the Leeward Islands and Northeastern Caribbean on its way
generally toward the U.S.
Southeast.
It’s too early to say exactly where or whether the storm will hit
Florida and the Bahamas, though the official National Hurricane Center
forecast puts her not far off the coast as a Category 1 hurricane by
Sunday.

What
do you think about China rigging its markets just so people watching a
military parade don’t spend all the time secretly checking their stock
portfolios on their smartphones? Or the news that major fund custodians
are having big data problems? And how about Tiffany? Is this a sign of
other earnings warnings to come? Let me hear your thoughts over at the website.

Global market meltdown. That's really the only way to describe the recent stock market plunge worldwide.
The selling began mid-last year in Europe, spread to emerging
markets and most notably China a few months ago. Now the selling has
caught up to U.S. stocks with a vengeance.

Just between last Thursday and
Monday, the Dow Jones Industrials lost nearly 1,500 points! That's
extreme, but is it extreme enough to tell us the worst may be over and
this could be a great buying opportunity?

History suggests it does.

First, numerous
market breadth indicators are oversold in the extreme. Several have
reached levels not seen in years, and only after much steeper
corrections than this. Just take a look at the graph below ...

This shows the percent of
stocks listed on the NYSE trading above their 50-day moving average, a
widely followed trend indicator. Typically, 50% or more of all stocks
trade above this key level, signaling a healthy uptrend.

But notice how extreme low
readings in this index line up almost perfectly with major stock market
lows over the past five years.

In 2011 for example, when the
S&P dropped nearly 20% in value, less than 10% of stocks were above
their 50-day moving average. In other words, 90% of stocks were in
downtrends.

This was such an extreme
bearish reading that it screamed buy. That's because stocks were so
oversold there was nowhere to go but back up.

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Sure enough, after bouncing around for a few months, the S&P soared 31.5% higher over the next six months!

Since then there have been
several other extreme lows in this indicator (circled above), marking
two major lows in 2012, several minor lows in 2013 with readings in the
30% range (not circled), and last year's October low.

Every single time stocks rallied substantially higher.

But the current reading of just
7.5% beats them all. It's the lowest since 2009! In other words, 92.5%
of NYSE stocks have already sold off, and stocks are way overdue for a
rebound, probably a big one.

Second, fear is
so thick right now you can cut it with a knife. Just tune into CNBC
for five minutes and you'll see what I mean. I keep expecting Cramer to
jump out of his studio window any day now.

The CBOE Volatility Index (VIX)
is a more objective measure of stock market fear. It too is a contrary
indicator. In the past, whenever VIX spiked sharply higher, it was
almost always at, or very near, a stock market bottom.

This week's extreme VIX print
over 50 intraday was the highest reading in the last six years.
Granted, it's possible this signals a negative trend change for the
market is underway. After all, VIX did ultimately spike even higher in
2008.

But much more often a VIX
reading this high has been a reliable signal that stocks are oversold
and to expect a rally in the weeks and months ahead.

Translation: if your time-frame as an investor is longer than a few weeks, this should prove to be a great buying opportunity.

In fact, my colleague Jon Markman recently shared some interesting stats from Sentimentrader.com that examined every VIX spike above 50 in the past 30 years.

After such extreme readings, the S&P went on to post a median
gain of 7.2% just one month later, and stocks were up 97% of the time.

Three months later, stocks gained 11.8% and were up 98% of the time.

Going even further back, over
the last half-century, there have been eight occasions when the S&P
500 plunged 8% or more over a three day period (which it did again
Thursday-Monday).

Stocks subsequently bounced 99%
of the time — enjoying a median gain of 6.2% over the next thirty days
—and stocks were 22.9% higher one year later.

This doesn't guarantee a bottom
is in. Stocks could slip lower near term. But it does tell me panic
selling — or worse, selling short — at this point is most likely the
wrong move to make.

Based on an objective look at
stock market moves in the past, the probabilities strongly suggest
higher prices are ahead. Now's the time to have your shopping list
ready to scoop up some quality stocks on the cheap.

27 Images That Prove That We Are In Danger

These
images capture the devastating effects the human race have on our
planet, reminding us that we must change our ways soon or deal with the
consequences. Some of these images are really touching, but we hope you
get the message.
The images below were selected by hefty.co and are just a few of the many images that we see on a daily basis reminding us of the effects we have on our planet.
We’ve also created an article 64 historical pictures you most likely haven’t seen before and 46 Incredible Photos You May Not Have Seen Before.
Please SHARE these pictures with your friends and family to raise awareness.1. The view over the overdeveloped metropole of Mexico City (with more than 20 million inhabitants).

2. An elephant killed by poachers left to rot.

3. The rainforest in flames – goats used to graze here.

4. Trails of excessive air traffic over London.

5. A massive truck delivers a load of oil sands for processing. Oil sand is considered the energy source of the future.

6. A simple herd farmer cannot withstand the stink of the Yellow River in Inner Mongolia.

7. A waste incineration plant and its surroundings in Bangladesh

8. A fire storm plows through Colorado – increased incidences of wild fires is a result of climate change.

9. The scars left behind from the mining of oil sands in the Canadian province of Alberta.

Wednesday, August 26, 2015

This
is exactly the type of market behavior that we would expect to see
during the early stages of a major financial crisis. In every major
market downturn throughout history there were big ups, big downs and
giant waves of momentum, and this time around will not be any
different.

As I have explained repeatedly, markets tend to go up when things
are calm, and they tend to go down when things get really choppy.
During a market meltdown, we fully expect to see days when the stock
market absolutely soars. Waves of panic selling are often followed by
waves of panic buying. As you will see below, six of the ten best
single day gains for the Dow Jones Industrial Average happened during
the financial crisis of 2008 and 2009. So don’t be fooled for a moment
by a very positive day for stocks like we are seeing on Tuesday. It is
all part of the dance.

At one point on Tuesday, the Dow was up over 400 points, and many
of the talking heads on television were proclaiming that the stock
market had “recovered”. This is something that I predicted would happen
yesterday…

And if stocks go up tomorrow (which they probably should), all of
those same “experts” will be proclaiming that the “correction” is over
and that everything is now fine.

No, everything is not “fine” now. The extreme volatility that we
are witnessing just tells us that more trouble is coming. Early on
Tuesday the market was “burning up energy” as short-term investors
sought to “buy the dip”. But now that wave of panic buying is subsiding
and the Dow is only up 240 points as I write this.

Overall, the Dow is still down more than 2,200 points from the
peak of the market. Even though I specifically warned that a market
crash was coming, I didn’t expect the Dow to be down this far in late
August. Even after the “rally” we witnessed today, we are still way
ahead of schedule.

The truth is that what we have seen so far is just the warm up act.

The main event will unfold during the months of September through
December, and right now most people could not even conceive of the
things that we are going to see in 2016.

But all along, there are going to be days when stocks fly higher.
As I mentioned above, many of the “best days” in stock market history
occurred right in the middle of the financial crisis of 2008 and 2009.
This is a point that Jim Quinn has made very eloquently…

Six of the ten largest point gains in the history of the stock
market occurred between September 2008 and March 2009. That’s right.
During one of the greatest market collapses in history, the market
soared by 5% to 11% in one day, six times. Here are the data points:

2008-10-13: +936.42

2008-10-28: +889.35

2008-11-13: +552.59

2009-03-23: +497.48

2008-11-21: +494.13

2008-09-30: +485.21

Do you think these factoids will be shared with the public today on the stock bubble networks? Not a chance.

And all of the technical indicators are still screaming that U.S.
stocks have a long, long way to fall. The long-term analysis has not
changed one bit.

Often, it is the short-term news that drives markets on any
particular day. Tuesday began with another massive stock selloff in
Asia…

The Shanghai Composite, China’s main stock exchange, fell 7.6% on
Tuesday – after losing 8.5% on what state media have called China’s
“Black Monday”.

It was the worst fall since 2007 and caused sharp drops in markets in the US and Europe

Tokyo’s Nikkei index had a volatile day, closing 4% lower.

In another desperate attempt to stop the bleeding, the Chinese decided to cut interest rates…

The People’s Bank of China has lowered its interest rate for the
fifth time since November. The one-year lending has been reduced by 25
basis points to 4.6 percent; the one-year deposit rate has been cut by
25 basis points to 1.75 percent. The change comes into force on
Wednesday.

This reduction in interest rates was cheered by investors all over
the planet, and as a result there was a wave of panic buying in Europe
and in the United States.

But none of the short-term activity changes the fact that global
financial markets are absolutely primed for a giant crash. I like how
Bill Fleckenstein put it during a recent interview with King World News…

I have no idea how this is going to play out, other than I know we
are headed considerably lower. The fact that so few seem to understand
what the actual problem is makes me even more confident about that
point. It would seem that everyone is using the easy answer and blaming
China, but that was just the catalyst. The market has been trading in a
heavy sideways fashion for some time, expectations are way higher than
can be met, the technical action has now deteriorated, and bad news
actually matters at the same time that speculation has run rampant. As I
have stated many times (and also noted the reasons why), you couldn’t
create a more crash-prone environment if you specifically set out to do
so.

What we can’t account for are “black swan events” which could greatly accelerate this financial crisis.

A war in the Middle East, a major natural disaster or a terror
attack involving weapons of mass destruction are all examples of the
kinds of things that could turn this market crash into full-blown market
implosion.

As we move into the critical month of September 2015, I think that
it is safe to say that we should all be ready to expect the unexpected.
Our world is becoming increasingly unstable, and I am extremely
concerned about the period of time that we are heading into.

Read more at http://www.prophecynewswatch.com/2015/August26/261.html#U2wx2CRZbgFHBdQo.99

About Me

ROLAND SAN JUAN was a researcher, management consultant, inventor, a part time radio broadcaster and a publishing director. He died last November 25, 2008 after suffering a stroke. His staff will continue his unfinished work to inform the world of the untold truths. Please read Erick San Juan's articles at: ericksanjuan.blogspot.com This blog is dedicated to the late Max Soliven, a FILIPINO PATRIOT.
DISCLAIMER - We do not own or claim any rights to the articles presented in this blog. They are for information and reference only for whatever it's worth. They are copyrighted to their rightful owners.
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